However, the data helped increase market expectations for a Federal Reserve rate hike by the end of the year. Market expectations for a rate hike in December were at about 54 percent Tuesday, up from just 37 percent on Monday, according to the CME Group's FedWatch tool.
"It's only one month's worth of data but it's pretty good data," said Guy LeBas, chief fixed income strategist at Janney Montgomery Scott, referring to the retail sales numbers released earlier on Tuesday. "The big story is the low starting point" for rate hike expectations entering Tuesday.
LeBas noted that most investors weren't expecting the Fed to tighten monetary policy after weak inflation data was released Friday. "Now with some good data, we're seeing rate hike expectations buoyed a bit."
Stocks posted sharp gains on Monday, with the information technology sector closing at a record high. Last week, stocks posted their second-worst weekly performance of the year, with the S&P falling 1.43 percent.
Investors also breathed a sigh of relief after North Korean leader Kim Jong Un said he would wait for further action out of the U.S. before making a decision surrounding a missile strike on Guam.
"It feels like we may be able to work our way into a stalemate," said Wunderlich's Hogan. "With that in the backdrop, we can shift our focus to fundamentals."
Gold, considered a traditionally safe trade, saw prices fall $10.70 to settle at $1,279.70 per ounce. Wall Street had loaded up on safe havens last week as they hedged against potential escalation in the war of words between President Donald Trump and the North Korean government.
"As long as the economic expansion continues, the markets are likely to recover from geopolitical related volatility," Jason Pride, director of investment strategy at Glenmede, said in a note.
"[T]his 8 year bull market has coincided with geopolitical events such as the Arab Spring, fears of a European Union breakup, annexation of Crimea and the Greek Debt Crisis. Conversely, some geopolitical events can have prolonged negative effects on the market; the key is to assess the probability of economic impact of each event," Pride said.
Stocks have seen strong gains this year, with the S&P 500 surging approximately 10 percent. But some widely followed money managers, like DoubleLine's Jeffrey Gundlach, have been cautious about the market lately.
David Tepper, the famed hedge fund manager of Appaloosa Management, told CNBC on Tuesday he still loves stocks, adding "you're nowhere near an overheated market."
—CNBC's Alexandra Gibbs contributed to this report.